FirstRand’s total impairment charge rises to R24.38bn

FIRSTRAND yesterday flagged that its total impairment charge more than doubled in the six months to end June, rising to R24.38 billion as bad debts escalated on expected credit losses arising from the economic consequences of Covid-19.

The group said that the impairment charge more than doubled on the IFRS 9 accounting standard requirements to make provisions for bad debts based on forward-looking estimates of expected credit losses and further provisions were raised for increased arrears and non-performing loans as customer income and affordability deteriorated.

“The impact of the credit performance was further compounded by margin pressure, subdued non-interest revenue growth due to lower absolute volumes during the lockdown period, and depressed new business origination,” FirstRand said.

Last year the group reported a total impairment charge of R10.50bn.

The group said that its normalised earnings for the period also fell 38 percent to R17.3bn, with return on equity (ROE) declining to 12.9 percent.

Chief executive Alan Pullinger said the Covid-19 pandemic had a profound effect on its performance. He said the pandemic had affected financial institutions the world over and resulted in the deepest GDP contraction since World War II in South Africa.

“The magnitude of this crisis is evident in FirstRand’s ROE, which has dropped below the cost of equity for the first time since the global financial crisis. The group’s normalised earnings are back at 2014 levels,” Pullinger said.

FirstRand underlying businesses of FNB, RMB, WesBank and Aldermore, also reported a 38 percent decline in basic and diluted headline earnings per share to 308.9 cents a share and the group did not declare a final dividend, in line with the guidance from the Prudential Authority.

Pullinger said the economic impact of Covid-19 would continue to place acute pressure on the group’s performance for the rest of the 2020 calendar year. “Trends post lockdown are improving as the economic recovery slowly emerges. However, activity levels will remain muted on a relative basis,” he said.

Old Mutual head of macro solutions Peter Brooke said the situation had been dire for local banks underlined by Capitec’s warning this week that its half-year earnings could fall up to 82 percent.

Brooke said Standard Bank’s headline earnings per share also fell 44 percent, Absa 82 percent and Nedbank 69 percent. He said despite the cumulative R31bn provision for expected impairments, these banks still managed to record some profits.

“To deliver R11bn of profit in the first half with no dividends means there is even more of an equity buffer and we need not worry about our banking system going under. This removes a potential systemic risk as coming into this crisis we knew the banks were well-capitalised but there was still a risk of losses,” Brooke said.

FirstRand shares gained 0.24 percent on the JSE yesterday to close at R41.